WINDHOEK, Namibia — Financing is often one of the biggest hurdles to hotel development, but in Africa, both development banks and commercial banks have a role to play in the financing environment.
Executives from two banks and one hotel company active in Africa tackled the challenges facing hotel financing on the continent as part of a panel discussion on development financial institutions at the recent African Hospitality Investment Forum.
Connie-Marlene Theyse, head of enterprise banking and commercial at First National Bank of Namibia, said neither commercial banks nor development finance institutions gave better deals than the other in Africa, but both have different mandates.
John Steytler, CEO of Development Bank of Namibia, said one notable difference between the two institutions is how they assess risk.
“The fundamental difference between commercial and development is the liabilities [development banks] issue. We prefer not to give short-term loans,” he said. “There are huge developmental problems in Africa. Do you think commercial banks will go there? If we want to see Africa develop, you cannot question the role of DFIs.”
Steytler added his mission is to support his government to help develop Namibia, especially in an era of major travel, tourism and hospitality demand in the years following the pandemic.
“We are 100% owned by Namibia, but we also raise capital from other sources. Our key focus is to unlock new sectors, but we do not want to compete with commercial banks,” he said.
One focus is to turn debt — what Steytler termed “lazy capital” — into new forms of capital that help national regeneration.
“This not just for hotels. Logistics are very good for us, and we are starting to see some recovery from the country’s long COVID-19,” he said.
Throughout the duration of the conference, hotel leaders, investors and bankers were optimistic about Africa's growth prospects. With the amount of opportunities available, the next decade is Africa's to lose, and some markets are poised to take a big leap forward.
“Namibia is clearly on the brink of a major transformation,” said Ewan Cameron, a South Africa-based director for Westmont Hospitality, which is exploring more hotel opportunities in Africa. “If they have a facility that says ‘yes,’ the economy will pick up in 2027, 2028, 2029, but if that does not happen for another two years, then [they would say] we realize that is not your fault.”
On the question of choosing the ideal financing partner, Cameron said both types of banks are relevant. Development banks can be genuine partners, but the same types of due diligence questions will arise, such as what are the guarantees and how will risks be mitigated?
The Lending Process
Theyse said African banks are highly active and looking for opportunities. Commercial banks inevitably do a great amount of pre-deal homework on any client, and an established relationship can result in deals closing faster.
She cited an example from one of her bank’s partners, Africa Redevelopment Bank.
“It wanted to go to the next level and was looking at capital injections. There is a space for all of us. Another example is the [International Finance Corporation], which has a pan-African focus,” she said. “We do transactional [foreign exchange], and we are quicker than development banks. There is not so much due diligence as we know the industry and the customer.”
Both types of financial institutions must understand the requirements of each side in general terms and for each project. A focus of the Development Bank of Namibia is an increasing presence in brownfield development, Steytler said.
“Again, we do not want to compete with the commercial banks. We go where it is very high risk to help unlock tourism. If the deal is for a hotel in Windhoek [Namibia’s capital], we’d prefer a commercial bank to enter the deal,” he said.
The First National Bank of Namibia’s greater role in hotel operations than ownership often leads to deals in which it takes over existing assets and gives them new vision and equity repositioning, Theyse said.
“We partner with local pioneers and then exercise equity to take it to the next phase. Banks are not always keen on this, but why would we not want to revitalize assets, which will come to market more quickly?” she said.
But she added greenfield developments are currently the most attractive projects.
“If it has the right mix of equity, and with a development fund in there, too, it can allow the client to grow and possess a stand-alone asset not reliant on financing. That said, we all have the battle scars of greenfield developments,” she said.
Steytler warned against hotel investors and their banking partners looking at any project in isolation.
“It would be reckless for a DFI to do this without looking at the entire ecosystems, and that requires partnerships,” he said.
In many aspects, Africa is no different from any other continental market, Cameron said.
“There must really be an understanding of the business plan of the asset. [Westmont is] known as good operator with the banks,” he said. “We do not want to encumber our assets. We would do more deals if the cost of debt was lower, and this is where FDIs can do more, to look at the deal more holistically and more cost-effectively.”
Mark Dunford, the panel’s moderator and the Nairobi-based CEO at business consultancy Knight Frank Kenya, said one problem he often encounters is the borrower coming to the banks too late in the lifetime of the deal and with no previous relationship with the bank.
“Let’s look at the deal structure, and then the pricing,” Steytler added.